Zinifex Profit Surges Threefold on Metals Price Gains

Zinifex Ltd., the world's third- largest zinc producer, said first-half profit rose more than threefold after metal prices surged driven by demand from China.

Net income was A$751.2 million ($594.6 million), or A$1.54 a share, in the six months ended Dec. 31, from A$227.6 million, or 46 cents, a year earlier, the Melbourne-based company said today in a statement. Sales rose 97 percent to A$2.2 billion.

Average prices for the metal used to rust proof steel more than doubled in the half as supply couldn't keep pace with demand from China, which accounts for a third of global use. The Reuters/Jefferies CRB Index of 19 commodities yesterday rose to its highest this year led by metals, energy and agriculture.

``Resource companies are still positioned very well,'' said Michael Birch, who manages the equivalent of A$125 million in equities at Wallace Funds Management in Sydney, including Zinifex stock. ``We don't see a slackening in demand for zinc.''

Shares of Zinifex rose as much as 50 cents, or 2.9 percent, to A$17.70 on the Australian Stock Exchange and traded at A$17.34 at 12:18 p.m. Sydney time. The stock more than doubled in the past year, compared with the 23 percent gain in the benchmark S&P/ASX 200 Index.

``We remain positive on the outlook for zinc with London Metal Exchange stocks at historically low levels and a moderate deficit expected during 2007,'' the company said in the statement to the exchange.

Lower Profit

Zinc for delivery in three months rose $35, or 1.1 percent, to $3,360 a metric ton on the LME yesterday. The metal, last year's second-biggest gainer behind nickel, rose to a record $4,515 on the exchange on Nov. 9.

Prices are down 21 percent this year, with Zinifex citing increasing exports from China and re-weighting by fund managers of commodity portfolios. Profit in the second-half will be lower should zinc prices remain at current levels, Zinifex said.

``I would stress that at $3,000 plus these are still exceptionally good prices in historical terms,'' Zinifex Chief Executive Officer Greig Gailey told journalists on a conference call. ``Nevertheless if they remain where they are today versus the last half, then our profit will be lower.''

The result compares with the A$745.5 million median estimate in a survey of six analysts. Zinifex is forecast to have adjusted full-year net income of A$1.5 billion, according to the median estimate of 10 analysts surveyed by Bloomberg.

Higher Costs

Operating costs rose by 10 percent in the period, Zinifex said. Mining companies globally are facing higher costs as they compete with each other for equipment, raw materials and labor to boost output. Costs are expected to continue to rise, it said.

``Pressures will remain while commodity prices are high and labor and capacity constraints continue,'' the company said in a presentation lodged with the exchange. Overall higher zinc prices are expected to more than offset cost increases, it said.

``The one surprise, pleasingly, is that cost pressures didn't take more of a toll,'' Wallace Funds' Birch said.

Production in the half fell 10 percent because of longer than normal planned shutdowns at its Century mine and Port Pirie smelter, as well as lower lead grades at Century, the company said. Output should return to ``more normal levels'' in the second half, excluding Century lead concentrate, Zinifex said.

Zinifex plans to combine its smelting assets with Brussels- based Umicore SA and sell shares in what would be the world's largest producer of the metal. The company this week offered C$370 million ($318 million) for Wolfden Resources Inc., an exploration company focused on Canada's Artic.

The company increased its first half dividend to 70 cents, from 10 cents a year earlier, it said.

``They have got a growth strategy that's going to involve acquisitions, so it probably makes sense for them to keep a bit of capital up their sleeves,'' said Wallace's Birch, who wanted to see a large dividend.

source:www.bloomberg.com